Remember, remember Liz Truss this November

Three years after the former prime minister sparked an economic crisis, here's how the chancellor can avoid a similar disaster, writes Ben Zaranko

- Ben Zaranko

Kwasi Kwarteng and Liz Truss at the 2022 Conservative conference, the year of the infamous mini budget.

(LeonNeal/Getty)

This week marks the anniversary of Liz Truss and Kwasi Kwarteng's mini budget. Warm wishes to all who celebrate.

Three years on, it seems a good time to reflect on the legacy of that ill-fated experiment. Doing so helps make sense of the fiscal bind Rachel Reeves, the chancellor, finds herself in and her options at what promises to be another momentous budget this November.

Let's start with the most direct legacy of the mini budget: the policy measures contained therein. For while Jeremy Hunt, installed as fiscal repairman in the aftermath, reversed most of the tax cuts announced by his more hubristic predecessor, he didn't reverse all of them. Of particular significance was the decision that the health and social care levy, scrapped by Kwarteng at a cost of £15bn to the exchequer, would remain scrapped.

Fast-forward to this autumn. The chancellor is boxed in. To meet her borrowing rules, repeatedly described as "nonnegotiable", it's widely expected she'll need to announce either spending cuts or tax rises. The general presumption is that she'll rely on the latter, given the parliamentary Labour party's aversion to welfare cuts and the difficulty of unpicking the multiyear departmental settlements set out in the June spending review.

The trouble is, the Labour manifesto promised not to increase national insurance (NI), the basic, higher or additional rates of income tax, or VAT - taxes which, between them, raise about two-thirds of all revenue. Let's put to one side the fact that the government already increased NI last year, and assume the chancellor would like to raise significant sums this autumn without breaking this promise: no mean feat.